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Franklin Tempelton analyses possible outcomes of the US elections, the effect on trade, foreign and domestic policies, market impact and implications for emerging market (EM) economies. The authors cover four broad election outcome scenarios: Donald Trump with a Republican Congress, Trump with a divided Congress, Kamala Harris with a divided Congress and Harris with a Democratic Congress.

Franklin Tempelton evaluates a Harris win with a divided Congress as the most likely scenario. “A Harris victory would likely be positive for risk assets in the short term,” Franklin Tempelton says. In the investment firm’s view, this outcome would allow the US Federal Reserve to stay on track with its easing cycle. However, in the medium term, the authors “expect inflation to remain elevated with loose fiscal policy and therefore US rates to have an elevated floor.” The “US dollar would likely be less strong than under the Trump scenarios, supporting local currencies,” they add.

With a Trump victory, tariffs would be “very likely”. A stronger US dollar would lead to “higher US Treasury yields, leading to tightening financial conditions” and weaker growth expectations. For EMs, the impact of tariffs would be somewhat mitigated by a weaker local currency and supply-chain reorganisation, with EM-EM trade increasing. As well as reduced support for Nato, Franklin Templeton expects that, under Trump, there will be “stronger relations with authoritarian regimes”.